Abstract

Linda L. Moeller (2002) "On the Estimation of
Classical Human Capital Wage Equations with Two Independent Sources of Data
on Actual Work Experience."

The BLS multifactor productivity series decomposes labor productivity
growth into components associated with increased capital intensity of
production and shifts in the skill-composition of the work force
attributable to changes in the level and distribution of human capital.
The use of administrative record data on actual accumulated work
experience as an indicator of workers' current productivity is one of the
distinguishing features of this series. The current procedure relies on a
one-time match of Social Security Administration (SSA) data to records
from the March 1973 CPS to develop a proxy that is entered in a human
capital wage equation. The parametric relationship between accumulated
work experience and the demographic characteristics of the work force is
unlikely to remain stable over time, however. Therefore the BLS has
undertaken a long-run research project to update the work experience data
at regular intervals.

Two independent sources of information on accumulated work experience
were examined: SSA administrative record data on quarters of covered
employment, and data from the 1984 Survey of Income and Program
Participation (SIPP) on the number of years in which the respondent was
employed for 6 months or longer. Direct comparison of the SIPP and SSA
data show that the SSA data generate biased estimates of total actual work
experience due to incomplete program coverage at the beginning of the
Social Security program, in 1937, and subsequent changes in SSA coverage
rates. Contemporaneous experience profiles estimated with SSA data are
flatter than their SIPP counterparts, while the 1973 CPS-SSA experience
profiles are flatter than their 1984 counterparts. Wage profiles estimated
with the 1973 CPS-SSA experience proxy are too high for younger and older
workers. The result is that weights assigned to the hours growth rates for
younger and older workers are too large, while those assigned to hours
growth rates for prime-aged workers are too small. These results tell
something of a cautionary tale with respect the assumption that the
coefficients of the experience equation are stable over time.